Quick Hitter: The financial markets steadied themselves today after the initial “shock” of yesterday’s European elections. The EUROPEAN DEBT MARKETS showed resolve as both the BTPs and OAT futures performed better than the BUNDS and the EURO rallied back to almost unchanged as the market awaits the discussions between Merkel and Hollande, as well as further word about attempts to create a working government in Greece. At the end of the day, a crisis was averted but as all our readers know Spain, Portugal, Ireland and Italy are all still on the boil. So, while the heat was turned down NOTHING HAS REALLY CHANGED … so it goes.
The financial media was buzzing about the sage of Omaha’s opinion on the GOLD market. Yes, we all know that GOLD effectively has no yield and is a STORE OF VALUE AND HAVEN ASSET during times of economic malfeasance on the part of politicians and central bankers. The amazing thing in today’s world is that people like Buffett and Munger have not found a way to utilize the DORMANT ASSET AND PUT IT TO WORK.
In a world devoid of high quality bonds and the explosion of derivatives, the use of the world’s GOLD RESERVES AS SECURITY FOR SOVEREIGN BONDS COULD RAISE MONEY FROM AN ASSET WITH NO PRESENT UTILITY–IF GOVERNMENTS WOULD LEVER UP THE GOLD BY MAKING THE AMOUNT OF GOLD TO FACE VALUE SAY 5 TO 1.
From Bloomberg: These are the official GOLD HOLDINGS ACCORDING TO THE WORLD GOLD COUNCIL (in metric tons):
United States: 8,133.46
Germany: 3,400.95
IMF: 2,814.04
Italy: 2,451.84
France: 2,435.41
China: 1,054.09
Switzerland: 1,040.07
Russia: 851.54
Japan: 765.22
Netherlands: 612.45
India: 557.75
ECB: 502.07
BIS: 460.82
Saudi Arabia: 322.90
Spain: 281.61
Portugal: 382.48
Tags: BTPs, Charlie Munger, Gold, OAT, Warren Buffett
May 7, 2012 at 8:41 pm |
Europe as boiled frog phenomena.
May 7, 2012 at 11:34 pm |
Gold is more of a gauge or standard rule against liars.
Even if gold was invoke in a non-redeemable fashion, everyone (e.g. countries/governments, central banks) could show their self-control when printing IOUs or should I say, prove their self-control.
Still, lesser gold holding countries (think China) can’t understand why they have no voting power among the elite clubs in the civilized world.
On the hand, Euroland as a whole has more gold hoarded than the US, means Euroland could linger for decades more before finally folding up shop.
When wheat-food is worth more than gold, then it will be to late as the end times already passed you by.
May 8, 2012 at 6:43 pm |
Yra,
Wouldn’t it make sense that eventually the Central Banks will encourage GOLD to rise to unimaginable levels?
Why? Because the money that would flow into Commodities and Bonds and Emerging Markets would flow into a relic that doesn’t do anything. Savers will finally get a higher rate of return. Corporations and banks will service the mining industry and make tremendous profits for shareholders. And GOLD, that great black hole will soak up all the POTENTIAL monetary excess we should be experiencing.
It sounds simple and a win-win-win, but what am I missing here?
May 8, 2012 at 7:43 pm |
My sense is that governments around the world will be on the defensive side of the gold trade. They do not like it, and they will be reluctant to encourage it. The US already has higher capital gains tax on gold holdings. I would speculate that the government would put more restrictions on gold trading or higher taxes than already exist to discourage it. No government wants people to abandon their fiat currency. They will replace it with a new version on 10 to 1 trade before they’d let gold dominate the market.
May 9, 2012 at 6:50 am |
All interesting thoughts —but the issue is a GOLD BACKED BOND–it would enforce some sense of responsibility or risk losing one’s gold holdings—if the BARBAROUS RELIC is “worthless” why should any nation care losing its hoard in a bond default—at the same time “stupid” gold buyers would get a return similar in effect to a convertible bond—-hey if Buffet is correct then a nation’s gold holdings is a waste of assets—my proposal is an attempt to call the question–